One quantitative analyst explained how Bitcoin still has room to rise based on the trend forming in this popular on-chain indicator.
Short term Bitcoin holder SOPR may not be frantic yet
In CryptoQuant Quicktake mailone analyst discussed the SOPR for short-term Bitcoin holders. SOPR refers to an indicator that tells us whether BTC investors are selling their coins at a profit or loss.
This metric works by reviewing the transaction history of each token sold to check the price at which it was transferred before. If the previous transaction value of any currency is less than the current spot rate at which it is now quoted, selling it contributes to making a profit.
Likewise, transactions on coins of the opposite type result in a loss. SOPR collects these profits and losses for the entire network, and calculates their ratio.
In the context of the current discussion, the Bitcoin SOPR of the entire user base is not of interest, but only a specific part of it: Short Term Holders (STHs). STHs include BTC investors who have purchased their coins within the past 155 days.
This group represents the volatile side of the Bitcoin sector, which easily tends to sell off when there is a noticeable change in the market, such as a price rise or collapse.
Now, here is a chart showing the trend in Bitcoin STH SOPR over the past few years:
The value of the metric appears to have been going up in recent days | Source: CryptoQuant
As can be seen in the chart above, the price of Bitcoin STH SOPR has remained above the 1 mark in the past few months. In this region, STHs’ profit taking outweighs their loss taking, so this group as a whole can be considered to be making a net profit on their sales.
Recently, the index has seen a sharp rise within this region. This growth coincided with the cryptocurrency rising to all-time highs (ATHs), suggesting that STHs were increasingly giving way to the profit-taking appeal offered by rising prices.
Historically, taking profits from this combination is what has typically led to asset peaks. As the quantification in the chart showed, the current value of STH SOPR is still significantly below the area that has historically indicated market euphoria.
However, while the risk of a cyclical top may not be present at the moment, the indicator is located within the zone where local tops tend to occur for Bitcoin. For example, the rally in the first quarter of this year also formed when the gauge was in this region.
It now remains to be seen whether there is enough market demand to make profits from STHs, or whether another top will follow the asset.
Bitcoin price
Bitcoin has fallen into sideways action over the past few days with its price still trading around $90,400.
Looks like the price of the coin has shown stale action recently | Source: BTCUSDT on TradingView
Featured image by Dall-E, CryptoQuant.com, chart from TradingView.com
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